On 17 March 2026, the federal government released the final report of the Strategic Examination of Research and Development — commonly known as the Denholm review, after panel chair Robyn Denholm. Titled Ambitious Australia, the 126-page report sets out 20 recommendations for overhauling the country’s research, development, and innovation system. Several of those recommendations would fundamentally reshape how startups interact with the Research and Development Tax Incentive.
None of this is law yet. The government has said it will consider the recommendations “over coming months.” But the direction of travel is clear, and founders should understand what’s being proposed — both the opportunities and the risks.
The Current Scheme in Brief
The R&D Tax Incentive (RDTI) is the single largest form of government support for business R&D in Australia, distributing approximately $4.6 billion per year in tax offsets. For startups, the relevant component is the refundable tax offset available to entities with aggregated turnover under $20 million: a tax offset equal to the company tax rate plus an 18.5 percentage point premium.
In practice, for a company paying the 25% base rate, that means a 43.5% refundable offset on eligible R&D expenditure. If the company is in a tax loss position — as most early-stage startups are — the offset is paid as a cash refund after lodging the annual tax return. For many startups, this refund is a critical source of non-dilutive funding.
The scheme requires a minimum annual R&D expenditure of $20,000 and eligible activities must satisfy the statutory definition of “core” and “supporting” R&D activities under Division 355 of the Income Tax Assessment Act 1997 (Cth). Registration is through the Department of Industry, Science and Resources (DISR), with the ATO administering the tax offset.
What the Denholm Review Proposes
The review’s RDTI recommendations are split across four streams: startups, SMEs and scale-ups, large corporates, and administrative simplification. For founders, the startup and SME streams matter most.
A Premium Startup Stream
The headline proposal is the creation of a new “premium” RDTI stream for startups and high-growth companies. The key features:
A higher offset rate. The premium for qualifying startups would increase from 18.5 to 23.5 percentage points above the company tax rate. At the current 25% base rate, that translates to a 48.5% refundable offset — a material increase in the cash returned per dollar of eligible R&D expenditure.
Quarterly payments. Instead of waiting until the annual tax return is lodged to receive the RDTI refund — which can mean a 12-to-18-month lag between incurring the expenditure and receiving the cash — qualifying startups would receive quarterly payments aligned with Business Activity Statement lodgements. For early-stage companies managing runway, this is potentially transformative.
Expanded eligible activities. The review recommends broadening what counts as eligible R&D to include deployment, early commercialisation, user testing, and adoption research. Under the current scheme, activities must involve generating new knowledge or creating new or improved processes, and the line between “R&D” and ordinary product development has been a persistent source of disputes with DISR and the ATO.
Eligibility via a points-based test. Access to the premium stream would be determined by a 100-point-style assessment. Points would be awarded for factors including securing venture capital investment, participating in a recognised accelerator program, holding registered IP rights (principally patents), and collaborating with universities or public research agencies. The stream would be limited to three years, with the possibility of a further three-year extension for deep-tech companies with longer development cycles.
Changes for SMEs and Scale-Ups
For companies that have moved past the startup phase but still fall under the current $20 million turnover threshold, the review proposes:
Lifting the turnover cap to $50 million. Currently, companies with aggregated turnover above $20 million cannot access the refundable offset. The review would increase this threshold to $50 million — a significant expansion that would bring many scale-ups back into the refundable regime.
Growth-linked eligibility. After an initial period on the standard 18.5% premium, continued access to refundable benefits would require the company to demonstrate revenue growth of at least 5% above CPI. Companies that fail to meet this threshold would lose access to the refundable offset, though they could still claim the non-refundable offset.
Administrative Simplification
Two simplification measures are relevant to startups:
A deemed rate for supporting activities. Rather than requiring companies to track and substantiate every dollar of “supporting” R&D activity expenditure, the review proposes a fixed ratio of supporting to core expenditure. This would reduce record-keeping and the ambiguity that currently surrounds self-assessment of supporting activities.
A higher minimum expenditure threshold. The minimum annual R&D project spend would increase from $20,000 to $150,000. This is the sharpest double-edged sword in the report — it simplifies the scheme by removing sub-scale claimants, but it also excludes very early-stage companies whose annual R&D spend falls below the new floor.
What Founders Should Pay Attention To
The $150,000 Floor is a Real Risk
A pre-seed or early-seed startup spending $80,000 a year on development work currently qualifies for the RDTI. Under the proposed changes, it would not. The review acknowledges this and recommends an “innovation voucher” program as an alternative support mechanism, but the details of that program are undefined. For bootstrapped founders in particular, this is a gap worth watching.
The Points Test Favours VC-Backed Companies
The 100-point eligibility test for the premium stream awards points for VC investment, accelerator participation, and patent holdings. These are reasonable proxies for innovation potential, but they also describe a particular type of startup — one that has already attracted institutional capital and is operating within the venture ecosystem. Founders building capital-efficient businesses outside the VC model may find themselves unable to access the premium stream despite conducting genuine R&D.
This is not a new dynamic — the existing ESVCLP regime already privileges VC-backed companies — but it would become more pronounced if the premium stream’s higher offset and quarterly payments are only available to companies that tick the right institutional boxes.
Quarterly Payments Would Change Cash Flow Planning
The shift from annual to quarterly RDTI payments would be significant for startups that currently factor the annual refund into their financial planning. Many founders treat the RDTI refund as a lump sum that arrives 3-to-6 months after year-end. Quarterly payments would smooth that cash flow but also change the mechanics of claims, record-keeping, and the role of R&D tax advisers. Expect transition costs as accounting systems and advisory arrangements adjust.
Expanded Eligible Activities Could Reduce Disputes
One of the most contested areas of the current RDTI scheme is the boundary between R&D and ordinary business activity. DISR’s interpretation of “core” R&D activities has narrowed over time, and many software companies in particular have had claims adjusted or rejected on the basis that their work constituted routine development rather than genuine experimentation. If the premium stream extends eligibility to user testing, adoption research, and early commercialisation, it could reduce these disputes — but only if the definitions are clear enough to provide certainty.
Revenue Growth Gating is Philosophically Awkward
Linking RDTI eligibility to revenue growth creates a tension with the scheme’s underlying purpose. The RDTI exists to encourage companies to undertake R&D they might not otherwise pursue — activities that are inherently uncertain and may not produce commercial returns. Requiring revenue growth as a condition of continued access penalises companies whose R&D doesn’t lead to short-term revenue, which is precisely the kind of R&D the scheme should be supporting. Founders with long development timelines or pivoting business models should monitor how this condition is defined if it progresses to legislation.
What Happens Next
The Denholm review is a set of recommendations, not a bill before Parliament. Minister for Industry and Innovation Tim Ayres has indicated the government will “carefully consider the report and its recommendations” over coming months. Given the scale of the proposed changes — and the budgetary implications of higher offset rates and quarterly payments — implementation is likely to be selective and staged. Some recommendations may appear in the 2026-27 federal budget; others may take years to legislate, if they are adopted at all.
For now, the current RDTI scheme remains in force and unchanged. Founders should continue to claim under the existing rules while keeping an eye on the government’s response.
What Founders Should Do Now
Keep claiming under the current scheme. Nothing has changed yet. If you’re conducting eligible R&D and spending above $20,000 per year, you should be claiming.
Review your R&D expenditure levels. If the $150,000 minimum proceeds, companies spending below that threshold will need to either increase their R&D investment or find alternative support. Start planning now.
Document your R&D rigorously. Whether the current or proposed scheme applies, contemporaneous records of your R&D activities, hypotheses, and experiments remain essential. This is true regardless of which stream you end up in.
Talk to your R&D tax adviser. The proposed changes would significantly alter the economics and mechanics of RDTI claims. If you’re currently claiming — or planning to start — get advice on how the proposed reforms might affect your position.
If you have questions about how the Denholm review’s recommendations might affect your startup’s R&D tax strategy, or if you need help structuring your R&D activities for the current scheme, get in touch.
